Some additional questions on how bitcoins work!

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So help me get it clearly.

1) miners get bitcoins thanks to their capability to decrypt certain lines of code. 2) Miners sell them to "stock exchanges" or to "resellers" or to privates

Questions: 1)do Miners get bitcoins "for free" after they decrypt? and when they sell them do they get the entire amount? who creates the "packages" to be decripted? 2) Can anyone be a miner? 3) MtGox or bitestamp for example, are both miners and exchange, is that correct? 4) how exchanges fix the value of bitcoin? is there an algorithm or something that gives guidelines or general rules? 5) as far as I understand any exchange can basically fix the price indipendently...correct? 6) as far as I understand there is a limited amount of bitcoins and therefore exchange and resellers can go into a shortage of bitcoins, at least theoretically.

Thank you

Sean Black

Posted 2013-12-02T13:56:29.037

Reputation: 321

Question was closed 2013-12-04T16:35:27.047

3Welcome to stack exchange, you may want to split your questions up as these sort of group questions to get down voted if not directly related to each other. If your title cant concisely explain whats inside, something is generally wrong :) – MaxSan – 2013-12-02T14:11:16.903

Please only ask about one topic per question. It is also highly recommend to search for an answer before you ask. Please see [Ask] for some guidance. – Murch – 2013-12-03T10:13:24.427

Wow TVarmy that was an hell of god answers. Thanks a lot for this. Can I go a bit further now? :) 1) Do Miners sell their bitcoins on the exchange markets or they have other preferred channel? 2) supposing I want to "initiate" an exchange market the only way to get some bitcoins IN would be to buy them on another exchange, or to wait for people starting trading, correct? 3) What's the difference between a site like https://www.bitsofgold.co.il and bitstamp? Can bitofgold be considered an exchange too? thanks!

– Sean Black – 2013-12-03T07:50:39.730

Answers

1

  1. Miners get bitcoins by solving a cryptographic puzzle formed from the current block of transactions that also verifies the most recent transactions. Their cost is the hardware and electricity needed to run the programs that generate the winning solution. Those bitcoins are the same as any other bitcoin. They can store them in their personal wallets, buy goods or services with them, or sell them at an exchange for fiat money.
  2. Yes, assuming they have the hardware for it. Today, you won't make a profit mining bitcoins unless you have an ASIC (application-specific integrated circuit) miner, and those are expensive. Further, the difficulty rises as more processing power enters the network, so there is something of an arms race as faster asics are made and brought online. A GPU or CPU can mine, but it'd waste more electricity than it would earn, so it's discouraged. In addition, most miners are part of "Mining Pools," large groups of miners that work in parallel to solve the most recent block and then split the reward. As there's only one payout every 10 minutes, and many miners, you're statistically much more likely to get a payout working in a pool.
  3. Mt. Gox and Bitstamp are exchanges, and not "miners." They provide the service of matching people wanting to sell bitcoin for fiat currency with people wanting to buy bitcoin for fiat, and for this service, they charge fees with each transaction they arrange.
  4. The value isn't really fixed in any way. Supply and demand dictate the cost of Bitcoin on the exchanges. People place orders to buy or sell bitcoins at a certain price, and if someone is willing to buy bitcoins at a price higher or equal to the price someone is willing to sell bitcoins, the exchange will arrange a transaction between the two. As there are many standing orders, the value is assumed to be either at the value of the last transaction, or somewhere between the highest priced unfilled buy order and the lowest priced unfilled sell order.
  5. If they're operating as a proper exchange, they really can't. Mt. Gox, for example, streams every transaction. You can watch it at Clark Moody. Further, since someone could take their bitcoins to another exchange to sell, it's really in their best interest to let the market dictate the price.
  6. No. Bitcoins are very divisible. Today, a bitcoin can be divided to 8 decimal places to get the smallest unit, which is called a Satoshi. Lost currency would probably cause deflation, where the other coins have more spending value. The protocol could be changed to split a Satoshi even more if need be. As the exchanges only facilitate orders between people with bitcoins and people who want to buy bitcoins, "running out" isn't something that could happen. So long as the exchange has someone who wants to sell bitcoins, the exchange can still sell bitcoins. And if the exchange were to run low on people willing to sell, that would drive up the value quite a bit, and probably lead to people making less/smaller buy orders until the market adjusts.

TVarmy

Posted 2013-12-02T13:56:29.037

Reputation: 76

Wow TVarmy that was an hell of god answers. Thanks a lot for this.

Can I go a bit further now? :)

1) Do Miners sell their bitcoins on the exchange markets or they have other preferred channel?

2) supposing I want to "initiate" an exchange market the only way to get some bitcoins IN would be to buy them on another exchange, or to wait for people starting trading, correct?

3) What's the difference between a site like https://www.bitsofgold.co.il and bitstamp? Can bitofgold be considered an exchange too?

thanks!

– Sean Black – 2013-12-03T08:26:31.437

Asked: 2013-12-02T13:56:29.037

Viewed: 130 times

Active: 2013-12-03T07:50:39.730